RISK REPORT 2016 Challenging tenants, water & theft: a Simple guide to the unforeseen costs of buy-to-let simple landlords www.simplelandlordsinsurance.com
Simple Landlords Insurance Risk Report 2016 When you re deciding whether to invest in a buy-to-let, the evaluation runs deeper than the purchase price and rental income. Every landlord prepares themselves for the expected costs such as purchasing the property, preparing it for market, repairing and refurbishing it. But what about the costs and problems that many overlook? Your ability to choose the right property and tenant can make a big difference to your insurance premium as well as the likelihood that you will need to make a claim or sustain damage that isn t covered by your insurance policy. At Simple Landlords we have used our insight as a leading insurance provider to the buy-to-let landlord market for the last 10 years, to identify the unforeseen drains on a landlord s pocket and provide advice on how you can avoid them. Reading this report will help you learn from the pitfalls others have faced with practical advice on how to protect your investment. 2 Risk Report 2016 Risk Report 2016 3
What influences your insurance premium? Insurance premiums can vary significantly from property to property, tenant to tenant and location to location. Having a clear understanding of the five key factors that can influence higher premiums, will save you money in the long run and prevent any nasty surprises. 1 Your property Larger properties will contribute to higher premiums due to the cost of rebuilding the whole property in the event of significant damage such as fire or subsidence. Larger properties often also have additional bathrooms and utility rooms meaning there are more water pipes, which raises the chances of a costly leak. Furthermore flat roofs cost more to insure as they are more likely to pool water and leak. The age of the property is important too as older properties take longer to repair and require more complex and therefore expensive materials or skills to fix. Tip: Your property should be insured for how much it would cost to rebuild from scratch, including labour and materials. Avoid the mistake made by many by working this value out rather than using the property s purchase price. Many properties in the south would cost less to rebuild than their purchase price, so this will save on your premium. However, it s important ensure the re-build value is accurate to avoid a shortfall in any potential insurance pay out. In the event of underinsurance, the insurance company would deduct the percentage underinsured from damage and repair costs. The free-to-use BCIS calculator, created by RICS, will estimate a rebuild value for most types of property online. 4 Risk Report 2016 Risk Report 2016 5
2 Your property s location The postcode of your property will indicate how likely it is that there will be a break in, storm damage, subsidence or flooding. The higher the chances, the higher the insurance premium. However, we know there is a person behind the property and will also look at your previous claims and whether you normally take out insurance. So even if we have seen significant claims in a particular area, we offer a discount to landlords who have avoided claims for a number of years and who have held insurance for a long time. Tip: Want to know if the property you re thinking of buying is at risk of flooding or a high crime area? The Environmental Agency website maps flood risks from rivers, seas, reservoirs and surface water by postcode while Propertydetective. com details the local crime rate and any other nuisances in the area. 3 Your tenants Many landlords build a portfolio of properties based around a preferred tenant type. Some like to prefer to invest in several properties in more affordable areas and rent those out to DSS tenants rather than one property in a more expensive area, because they will make a higher yield. Others like big houses in student areas where there is a steady annual stream of house hunters. Student tenants have a slightly higher premium because they are more likely to cause accidental damage (think parties) and are also slightly slower to tell their landlord if there s a problem with the building. Professionals are more likely to take care of your property and tell you quickly if there s a problem with it and so this tenant type is unlikely to result in higher insurance costs. Unoccupied properties come with the extra risk of being broken into and of nobody noticing if something goes wrong which often means the problem is made worse and a bigger, more costly, repair needed. 6 Risk Report 2016 Risk Report 2016 7
4 Optional or flexible covers Some landlords will buy extra insurance to reduce their excess payments or to increase what is covered by their policies. Some of these will increase a premium but may save thousands in the event of a claim. Flexible cover options include: Choosing to cover the let property for the contents or building only Additional cover for accidental damage on either the property or its contents Increased or decreased cover for loss of rent or alternative accommodation cover Changing public liability cover which insures landlords against any claims made by tenants if they are injured or their possessions are damaged from any incidents at the property Cover for emergency repairs, unforeseen legal expenses, loss of keys, claims excesses or rental income 200 180 160 140 181 Cause of damage - claims index Burst pipe Force and violence High wind Impact Vandalism Index base 5 Claims history Data shows that people who have claimed once are likely to claim in the future, compared to people who have never claimed. 120 The top reasons that landlords make insurance claims: At Simple Landlords we ve analysed more than 100,000 policies and investigated the most claimed-for events in buy-to-let properties, identifying factors which most commonly lead not only to higher insurance premiums, but hassle and ultimately loss of earnings. 100 1 The damage Storm damage Ave repair cost Number of days to conclude claim 1,500 34 80 90 86 77 2 Burst pipe 4,500 28 72 3 4 Damage from break ins Vandalism 2,300 22 1,900 12 60 59 59 59 5 Accidental damage to the building 2,200 18 6 7 Excessive rain Collapsed drains 2,100 18 2,600 24 40 44 40 48 8 9 10 Vehicle crashing into property Electrical fire Leak from property above 4,600 24 25,000 68 2,000 20 25 24 33 22 35 20 31 24 27 Average 4,660 Q1 Q2 Q3 Q4 8 Risk Report 2016 Risk Report 2016 9
Storm damage Average claim cost: 1,500 Average repair time: 68 days It s no secret among landlords that buy-to-let is not a business without expenses maintenance, licensing and now increasing tax bills to name just a few but most would raise an eyebrow at the idea of paying 33,500 for a single repair. That s how much it would cost you to bring a property back into a habitable condition after storm damage. Beware the conservatory While you never know where a storm will hit, certain features can make properties particularly vulnerable to harsh weather conditions. Properties with conservatories attached and dormer windows are especially likely to be damaged by high winds and excessive rain during a storm. A property in Edinburgh needed more than 11,000 worth of repairs, including Perspex roof covering to the buildings exterior and solid oak flooring to its interior, after two panels from its conservatory roof were ripped off during high winds in January 2015. In Keighley, West Yorkshire, another landlord sustained damage worth just under 5,000 when their conservatory roof was replaced after every single roof pane was punctured by hailstones during a storm in July 2015. Dormer damage A Glasgow property took in water damage to its ceilings and walls worth more than 6,000 in May 2015 through its Dormer window during a storm. The roof aperture windows are infamous for letting water in frequently due to poorly maintained flashing around their edges. How to avoid it: Weather-related damage can be significantly higher and more expensive to repair if your property is not maintained to a high standard. It may also result in a claim being rejected due to poor maintenance. Most insurance companies measure storms with the Beaufort wind force scale and consider that wind speeds below those classed as a storm (52mph) would not damage a well-maintained property. 10 Risk Report 2016 Risk Report 2016 11
Water damage from a burst pipe Average claim cost: 4,500 Average repair time: 66 days Water damage accounts for a fifth of all insurance claims by landlords. There are two underlying causes. Many of the leaks were caused by someone leaving the tap running or dodgy plumbing in the flats above. While, as a landlord you can never be in control of everything, you can choose whether or not to invest in a flat or house. Frost damage is the other major cause of burst pipes. This happens over winter if a property is empty and heating off because it is unoccupied or the tenants have gone on holiday. The water freezes in the pipes which burst as the weather warms. Raining indoors A burst pipe can wreak havoc from ceiling to floor. A landlord in Dartford, Kent, was left facing extensive repairs to their property, including plaster repairs to its ceiling, the removal of laminate flooring and extensive re-painting, after taking in water damage worth more than 5,400 from a leaky pipe in the kitchen of a property directly above. Another claim for a property in St Albans, Hertfordshire, saw water cascading down the walls of one landlord s property and leaving them need of a new ceiling after a tap was left one overnight in the property above. Final repairs to the property cost nearly 5,000. Tip: What many landlords may not know is that the excess - the fixed sum agreed by the landlord when taking up a policy which must be paid in the event of a claim - for escape of water damage excesses can be higher than for other types of claims. Policyholders can soften the blow of a high excess payment by paying a smaller additional premium to remove the excess in the event of a claim. How to avoid it: If you do decide to invest in a flat, then you might want to try and make contact with the owners of the flat directly above and get some idea of its running order before committing to a purchase. A practical way of reducing the scale and costs of damage from water damage claims is installing a water leak detection device. Insulation will slow down the escape of heat from pipes, but if the property is unheated for long enough, the pipes will freeze anyway. If a building is left unheated and unoccupied for longer than 24 hours the simplest solution is to keep the heating running but turned down to a low setting to save energy. Many thermostats have a frost setting, marked with a snowflake symbol, which keeps temperatures above 4 degrees. If your property will be unoccupied for a longer period over winter, the water and heating system can be shut off and the system drained by a heating engineer. 12 Risk Report 2016 Risk Report 2016 13
Theft and damage from break-ins Average claim cost: 2,300 Average repair time: 62 days Damage caused by thieves forcing their way into a property was the third most likely reason for landlords to need to claim on their policy, with an average cost of 2,284. As well as needing to call a locksmith and fixing the damage, break-ins can make tenants feel unsafe and there s a risk that they would want to move as a result, leaving you looking for new tenants. Forced entry A landlord in the West Midlands was contacted by his student tenants following a break in. The burglars smashed through the back door and tried to enter all the bedrooms upstairs. All the doors were locked but the thieves damaged the doors and frames, leaving the landlord with 4931.52 worth of damage. A property in Newcastle was broken into via the kitchen while the tenants were away in the evening. The thieves stole the boiler, causing flood damage to the bedroom, landing, living room and kitchen. How to avoid it: Installing good locks, porch lights and deterrent burglar alarms reduces the chances of a break in and will also be rewarded with lower insurance premiums. It also pays to be friendly with the neighbours because they keep an eye on things and will let you know if there is trouble at the property. 14 Risk Report 2016 Risk Report 2016 15
Electrical fires Average claim cost: 25,000 Average repair time: 141 days Fires caused by electrical failures are the most expensive to repair, with an average bill of 25,395. The Electrical Safety Council sets out strict guidelines for the testing and maintenance of electrical appliances which private landlords must adhere to and the Landlords and Tenants Act 1985 makes it clear that landlords are responsible for ensuring electrical installations and wiring are kept in a safe condition throughout a tenancy. Landlords who fail to do so not only face fines of up to 20,000 but also run the risk of failing in their duty of care to ensure a property is in a good state of repair and possibly invalidating their insurance policy. Bad sockets A house in Weston-Super-Mare, Somerset, took in damage worth more than 10,000 during a kitchen fire caused by a faulty electrical point. Damaged areas in the property included units, flooring, ceiling and wall plaster in the kitchen and smoke damage to other rooms. The electrics in the property had not been maintained in the 16 years since the landlord bought the property. How to avoid it: Make sure your electrics comply with current building regulations and PAT test appliances. If you re doing up a run-down older property, rewiring the property could end up saving you thousands. New plastering and appliances might look great on the surface but a lot of older properties don t have earth wiring, which can stop faulty appliances from causing fires. A lot of big fires are caused by tumble dryers in houses without a fuse box which would have cut off the circuit and prevented the fire. 16 Risk Report 2016 Risk Report 2016 17
Tenant damage Average claim cost index: No cover Average repair time: Unknown As a landlord you can never have a cast-iron guarantee that prospective tenants will look after your property but it is definitely worth doing as many additional checks as you can, whether simply by asking questions when you show them around or by using a professional tenant referencing service. It s fair to say the vast majority of landlords experience with tenants is relatively hassle-free but there are occasions where landlords may have wished they had done a little more homework before signing a tenancy agreement. Simple Landlords has seen a spate of metal theft from landlords properties by tenants after the relationship had broken down, with average losses of more than 8,000. Metal raids A Birmingham landlord experienced the problem first-hand when their property was wrecked when its boiler and copper piping were ripped out and stolen, leaving its downstairs ceilings soaked and flooring damaged. The theft happened just days after the property s tenants moved out following lengthy court proceedings to evict them after six months of missed rental payments. No sign of forced entry was found at the property during inspections. Cannabis farms A Suffolk landlord let his property out to a seemingly respectable family who paid six month s rent in advance. But rent wasn t paid in the second half of the year, the tenants avoided inspections, and the landlord found the locks had been changed. When the landlord did gain access he found the house hand been converted into a cannabis farm with walls ripped out to install heating ducts. The plants grew into the wall cavities, causing tens of thousands of pounds worth of damage. Tip: As a landlord it is important to establish whether malicious damage or theft by tenants is covered by your landlords insurance or if additional cover is required. How to avoid it: It sounds simple enough to say, but by communicating with tenants more regularly landlords could save themselves a lot of money and hassle. One way of being sure your property is in good hands is contracting a reputable letting agent registered with the Association of Residential Letting Agents. Or, if you really want to be sure your investment is safe and sound, arrange and agree convenient times for regular inspections with your tenants. Having tenants thoroughly referenced can help eliminate those who might cause malicious damage or steal items from a property. And be wary of tenants who offer to pay six months rent up front in cash as this is something cannabis farmers often do to make themselves seem appealing to landlords as well as to avoid ongoing contact. As a landlord it is important to establish whether malicious damage or theft by tenants is covered by your let property insurance product or if additional cover is required. 18 Risk Report 2016 Risk Report 2016 19
Why claims are rejected All insurance policies contain exclusions and conditions and it pays to make sure you understand some of the conditions so that there are no misunderstandings or surprises. These are the most common claims that landlords have tried to make that have not been covered by their policy. 1. No accidental damage cover in place 2. No storm conditions in area property located when the damage was caused 3. Damage to a burst pipe 4. Malicious damage by tenant 5. Damage caused by frost How to avoid it Get the right cover The most common reason that a claim isn t covered is that the landlord didn t take out the right insurance or additional cover when buying their policy in the first place. Accidental damage cover is often included free for professional tenants but can be an additional cost for other types. So if your tenant leaves a hot pan on your kitchen counter and it burns, a replacement counter may not be covered. Keep your property well maintained Most insurance companies don t cover properties for weather damage if the building wasn t properly maintained. Carrying out maintenance work will reduce the damage bad weather will cause to your property. Replacing slipped roof tiles, for example, helps prevent water damage in heavy rain. Regularly cleaning your gutter helps to ensure that rainwater doesn t enter your home. Five top tips 1. Conduct regular inspections to make sure your tenants are who they claim to be and that they re taking care of your buy-to-let investment 2. Make friends with the neighbours so that they will tell you if something goes awry at your property 3. Consider taking out extra insurance to reduce your excess payments and to cover accidental damage 4. Investigate the cost of insurance when you re evaluating the profitability of a property and factor it in from the beginning 5. Use the BCIS calculator to find an accurate rebuild cost 20 Risk Report 2016 Risk Report 2016 21
About Simple Landlords Insurance With different risks and responsibilities, life as a landlord can be complicated. Whatever type of landlord you are, protecting both your investment and income with Landlords Insurance is essential. Simple Landlords Insurance customers benefit from UK call centres with all claims managed in-house. Our specialist claims team includes qualified builders and surveyors who have the expertise and experience to guide you through the repair and claim process. At Simple we offer landlords cover with prices starting from 110 per year and more than half our new and existing customers paid less than 150 for their landlords insurance. We cover a wide range of tenant and property types, including those some insurance companies won t insure. Our quick and easy online service means that, once cover is in place, you can access, download and change your policy online 24/7. Designed specifically to complement your landlords insurance, we also offer: Legal Expenses Home Emergency Tenant Referencing Rent Guarantee Key Protection Excess Protection simple landlords www.simplelandlordsinsurance.com